fin202 new retake

An analytical method that uses a computer to quickly examine a large number of scenarios and obtain probability estimates for various values in a financial analysis is known as:

A. risk analysis.

B. credit analysis.

C. capital structure analysis.

D. simulation analysis.

D

Which of the following best explains the purpose of discounted cash flow (DCF) analysis?

A. A company estimates taxes based on its revenue

B. To determine stock volatility using historical data

C. To value an investment based on its future cash flows

D. To analyze profitability through accounting ratios

C

Your investment in a small business venture will produce cash flows that increase by 15 percent every year for the next 25 years. This cash flow stream is called:

A. an annuity due.

B. a growing perpetuity.

C. an ordinary annuity.

D. a growing annuity.

D

Which of the following is NOT a noncash item?

A. Depreciation

B. Taxes

C. Prepaid expenses

D. Prepaid taxes

B

The _______ is intended to reconcile changes in the balance sheet cash accounts.

A. capital budgeting cash flow calculation

B. accounting statement of cash flows

C. accounting statement of income

D. accounting statement of changes in equity

B

Additions to tangible assets, intangible assets, and current assets can be described as:

A. cash flows associated with investments.

B. operating cash flows.

C. free cash flows.

D. cash flows associated with financing.

A

Callable bonds give the issuer the right to:

A. Convert the bond to equity

B. Increase the coupon rate

C. Repurchase the bond before maturity

D. Delay coupon payments

C

A company's current ratio is 0.5. Everything else held constant, which of the following actions would increase

the company's current ratio?

A. Borrow long-term debts to reduce accounts payable

B. Use cash to reduce accruals

C. Use cash to reduce accounts payable

D. Use cash to reduce short-term notes payable

A

A construction firm is evaluating two value-adding projects. The first project deals with building access roads to a new terminal at the local airport. The second project is to build a parking garage on a piece of land that the hiring firm owns adjacent to the airport.

If both projects are positive-NPV projects, then the firm should:

A. accept both projects because they are independent projects.

B. select the higher NPV project because they are mutually exclusive.

C. accept both projects because they are contingent projects.

D. Not enough information is given to make a decision.

A

The firm's _____ is used to calculate NOPAT because the profits from a project are assumed to be incremental to the firm.

A. average tax rate

B. marginal tax rate

C. lowest marginal tax rate

D. highest marginal tax rate

B

Which of the following factors or activities can be controlled by a firm's managers?

A. Capital budgeting decision

B. The level of economic activity

C. The level of market interest rates

D. Stock market conditions

A

Which of the following business organizational forms is/are the easiest one(s) to raise capital?

A. Sole proprietorship

B. Partnership

C. Corporation

D. Both A and B

C

Which of the following is NOT a characteristic of a shareholder?

A. Expects to receive dividends

B. Expects to receive a capital gain on an investment

C. Expects to receive interest

D. Expects to have rights as defined in the corporation's charter and bylaws

C

Which of the following is NOT one of the goals of the Sarbanes-Oxley Act of 2002?

A. Attain greater board independence

B. Establish compliance programs

C. Establish ethics programs

D. Dictate maximum compensation levels

D

The creditors of a firm analyze financial statements so that they can better understand the firm's:

A. commitment to paying interest rather than principal on debt.

B. ability to generate sufficient cash flows to meet its legal obligations first and still have sufficient cash flows to pay dividends.

C. ability to meet only its long-term debt obligations.

D. ability to meet its short-term obligations.

D

Which of the following statements is true of annual percentage rate (APR)?

A. The APR is similar to the quoted interest rate, which is a simple annual rate.

B. The APR calculation adjusts for the effects of compounding and, hence, the time value of money.

C. The APR is the true cost of borrowing and lending.

D. The APR takes compounding effect into account.

A

Which of the following business organizational forms create(s) a tax liability on income at the personal income tax rate?

A. Sole proprietorship

B. Partnership

C. Corporation

D. Both A and B

D

Which of the following is NOT true about goodwill?

A. It is an intangible asset.

B. It represents the value of all unrecorded assets acquired in a merger.

C. It equals the premium paid over the fair market value of the assets acquired in a merger.

D. It reduces the firm's net worth by that amount.

D

Whenever a project has a negative impact on an existing project's cash flows, then that effect should:

A. be ignored.

B. be ignored if the project is evaluated using the correct cost of capital.

C. be included as a negative revenue amount on the new project's cash flow analysis.

D. be included if the impact is limited to noncash expenditures.

C

The cash flows used in capital budgeting calculations are based on:

A. historical estimates.

B. forecasts of future cash revenues, expenses, and investment outlays.

C. forecasts of net income.

D. forecasts of retained earnings available for financing projects.

B

In project analysis, corporate overhead allocations should only be taken into account if the:

A. firm is currently covering all of its overhead allocations.

B. firm is currently unable to cover all of its overhead allocations.

C. overhead allocations involve cash expenditures.

D. none of the above

C

Which of the following statements is true of amortization?

A. With an amortized loan, a periodic payment of principal portion gradually decreases over a period.

B. Amortization schedule represents only the interest portion of the loan.

C. With an amortized loan, a larger proportion of each periodic payment goes toward interest in the early periods.

D. The computation of loan amortization is wholly based on the computation of simple interest.

C

Which of the following statements is true of amortization?

A. Amortization solely refers to the total value to be paid by the borrower at the end of maturity.

B. The amortization schedule represents only the interest portion of the loan.

C. The computation of loan amortization is wholly based on the computation of simple interest.

D. The amortization schedule provides principal, interest, and unpaid principal balance for each period.

D

Which of the following is primarily responsrble for managing all financial aspects of a firm?

A. CFO

B. CEO

C. Board of directors

D. Audit committee

A

In order to calculate free cash flow by starting with incremental cash flow from operations, we should:

A. subtract the incremental capital expenditures and add the incremental additions to working capital.

B. add the incremental capital expenditures and the incremental additions to working capital.

C. subtract the incremental capital expenditures and the incremental additions to working capital.

D. add the incremental capital expenditures and subtract the incremental additions to working capital.

C

Which of the following is (are) the characterization of dealer market?

A. It is time-consuming to search for a fair deal.

B. The dealer does not hold an inventory of securities.

C. The presence of a dealer market does not affect market efficiency because search costs are still high.

D. It improved market efficiency because dealers provide continuous bid and ask prices for securities.

D

Downward-sloping yield curves usually occur:

A. when the economy is growing.

B. when the economy is stagnant.

C. before the beginning of a recession.

D. after the beginning of a recession.

C

Trident Corporation had the following cash flows in the current year. Which one of the following is a financing activity cash flow?

A. Rent on a warehouse amounting to $1.1 million

B. Purchase of $125,000 worth of five-year bonds issued by Towson Utilities

C. Preferred dividends to the tune of $330,000 paid to shareholders

D. Lease income received on a piece of land

C

When computing the NPV of a capital budgeting project, one should NOT:

A. estimate the cost of the project.

B. discount the future cash flows over the project's expected life.

C. ignore the salvage value.

D. make a decision based on the project's NPV.

C (Hoặc đề sẽ đổi cách hỏi: In computing the NPV of a capital budgeting project, one should NOT)

Which of the following is a characteristic of independent projects?

A. The cash flows are related.

B. The cash flows are unrelated.

C. Selecting one would automatically eliminate accepting the other.

D. Acceptance of one project is contingent on the acceptance of another-

B

When deciding to select one project or another where the projects have different useful lives, you could utilize:

A. a repeated investment analysis to decide which project is better for the firm.

B. a net present value analysis to compare each project without adjusting for the different useful lives of the projects because it is not applicable.

C. payback period calculations to make a decision.

D. an internal rate of return analysis which is preferred over an equivalent annual annuity analysis.

A

The true cost of lending is the

A. annual percentage rate.

B. effective annual rate.

C. quoted interest rate.

D. none of the above.

B

Two projects are considered to be mutually exclusive if

A. the projects perform the same function.

B. selecting one would automatically eliminate accepting the other.

C. Both a and b.

D. None of the above.

C (đáp án câu này có thể gộp lại là: the projects perform the same function and selecting one would automatically eliminate accepting the other.)

Which of the following statements is NOT true?

A. The risk that the lender may not receive payments as promised is called default risk.

B. Investors must pay a premium to purchase a security that exposes them to default risk.

C. US. Treasury securities are the best proxy measure for the risk-free rate.

D. A bond's yield to maturity is inversely related to its price.

B

Which of the following types of owners is protected by limited liability?

A. A sole proprietor

B. Ageneral partner

C. Owner of a corporation

D. A managing partner

C (Nếu hỏi : Which of the following types of owners cannot be engaged in managing the business?

=>> chọn A limited partner)

Which of the following statements about the time value of money concept is true?

A. It means a dollar received today is worth more than a dollar received tomorrow.

B. It assumes that inflation rate remains constant at least for the next 12 months.

C. it refers to the fact that higher cash flows in earlier years are less desirable.

D. It assumes that people prefer to consume things at some time in the future rather than..

A

Which of the following statements is NOT true about constant-growth stocks?

A. The cash dividend remains constant over time.

B. Mature companies with a history of stable growth show this pattern.

C. The dividends grow at a constant rate from one period to the next forever.

D. Far distant—dividends have a very small present value and add little to the stock's price.

A

The three economic factors that affect the shape of the yield curve are:

A. the real rate of interest, the expected rate of inflation, and marketability.

B. the real rate of interest, the expected rate of inflation, and interest rate risk.

C. the nominal rate of interest, the expected rate of inflation, and interest rate risk.

D. the real rate of interest, the nominal rate of interest, and interest rate risk.

B

The three different perspectives on financial statement analysis are those of the:

A. managers, regulators, and bondholders.

B. managers, shareholders, and creditors.

C. regulators, shareholders, and creditors.

D. bondholders, creditors, and regulators.

B

Which of the following should not be included in a schedule of cash flows from operations when evaluating a capital project?

A. Fixed costs.

B. Sunk costs.

C. Depreciation and amortization.

D. Variable costs.

B

Which one of the following statements about IRR is NOT true?

A. The IRR is the discount rate that makes the NPV greater than zero.

B. The IRR is a discounted cash flow method.

C. The IRR is an expected rate of return.

D. None of the above.

A

Which one of the following is NOT a cash flow from operating activities?

A. cash payments on the principal of long-term debt

B. payments for utilities and rent

C. payments to purchase raw materials

D. cash receipts from selling goods and services

A

Which of the following statements is true of zero coupon bonds?

A. Zero coupon bonds have a yield to maturity of 0%.

B. Zero coupon bonds tend to sell above their face value.

C. The most frequent and regular issuer of zero coupon securities are non-governmental agencies.

D. Zero coupon bonds have no coupon payments over its life and only offer a single payment at maturity.

D

Cash flows from financing activities include all but one of the following:

A. cash payments on the principal of long-term debt

B. issuing and paying out on insurance contracts

C. cash purchases of treasury stock

D. cash proceeds from a bank loan

B

Which of the following is used as the denominator when calculating the present value for a growing perpetuity that begins next period (PVP)?

A. The difference between i (the discount or interest rate) and g (the constant growth rate of the cash flow)

B. i (the discount or interest rate)

C. g (the constant growth rate of the cash flow)

D. The addition of i (the discount or interest rate) and g (the constant growth rate of the cash flow)

A

Which of the following is the best advantage of a common-size balance sheet?

A. It is very useful to assess how effectively a firm collected its accounts receivable.

B. It reveals a great deal of information about how the firm is controlling its expenses.

C. It can tell the shareholders how dividends have changed over time.

D. It reveals how the firm has managed its tax payments.

A

Which of the following is the best advantage of a common-size income statement?

A. It is very useful to assess how effectively a firm collected its accounts receivable.

B. it reveals a great deal of information about the adequacy of a firm's net working capital.

C. It can tell the analyst a great deal about a firm's efficiency and profitabflity.

D. It reveals how effectively a firm has increased its assets.

C

Which of the following project risk analyses is best able to analyze the effect of a change of a single set of circumstances, with other correlated inputs, on the change in NPV of a project?

A. Sensitivity analysis

B. Scenario analysis

C. Simulation analysis

D. Contribution analysis

B (risk +correlated)

Which of the following project risk analyses is best able to analyze the effect of a change of a single input, holding other inputs constant, on the NPV of a project?

A. Sensitivity analysis

B. Scenario analysis

C. Simulation analysis

D. Horizontal analysis

A (risk + single)

The NPV of a project is estimated by

A. discounting the expected cash flows of a project in the future.

B. discounting only the certain cash flows of a project in the future.

C. discounting the variance of the expected cash flows of a project in the future.

D. none of these.

A

The cost principle states that an asset should be recognized on the balance sheet at

A. the market value of the asset.

B. at the market value less the accumulated depreciation on the asset.

C. at its historical cost.

D. at its historical cost less the accumulated depreciation on the asset.

C

Which of the following would be unrelated to analyzing a firm's trend overtime?

A. The relative ratios of the major competitors

B. The sales growth

C. The control of the firm's expenses

D. The efficient use of the firm's assets

A

Which of the following does NOT belong to an income statement?

A. Depreciation expense

B. Goodwill

C. Extraordinary items

D. Amortization expense

B

Which of the following statements about the time value of money is true?

A. The value of a dollar invested at a positive interest rate decreases over time.

B. The further in the future you receive a dollar, the less it is worth today.

C. A dollar in hand today is worth less than a dollar to be received in the future.

D. The higher the rate of interest, the more likely an investor will elect to consume at present and forgo invest his funds

B

The generally accepted accounting principles (GAAP) are

A. rules that outline how a firm can operate ethically.

B. rules on how the firm will be valued in the event of a merger.

C. rules and procedures that define how companies are to maintain financial records and prepare financial reports.

D. rules for how a company can issue stock to raise money.

C

Which of the following is the best example of how a market-value balance sheet item differs from the firm's book-value balance sheet item?

A. A firm issued long-term bonds five-years ago that currently sell for par value.

B. A firm sold common stock twenty-years ago for $20.00 share. The firm's common stock is currently selling for $96.50 per share.

C. A firm has $5 million of accrued liabilities on the books.

D. A firm issued preferred stock ten-years ago. These shares of preferred stock currently are selling for par value.

B

The major disadvantages of market-value accounting include:

A. the difficulty in estimating the current value for some assets.

B. the difficulty in applying some of the valuation models used to estimate market values.

C. the resulting numbers are potentially open to abuse.

D. All of these choices are disadvantages of market-value accounting.

D

Current liabilities are liabilities that

A.will be converted to cash within a year.

B. must be paid within a year.

C. will be converted to equity within a year.

D. none of the above

B

Current assets are assets that:

A. will be converted to cash within a year.

B. must be paid within a year.

C. will be converted to equity within a year.

D. must be depreciated.

A

Time value of money refers to the concept of.

A. summing a stream of future cash flows.

B. why a dollar received today is worth more than a dollar received tomorrow.

C. the time required to double an amount of money assuming no application of an interest rate.

D. why people prefer to consume things of equal value at some time in the future rather than today.

B

The internal rate of return is

A. the discount rate that makes the NPV greater than zero.

B. the discount rate that makes the NPV equal to zero.

C. the discount rate that makes the NPV less than zero.

D. both a and c.

B

From the owner's perspective, which of the following should be the primary focus of managers?

A. Profit maximization

B. Revenue maximization

C. COGS minimization

D. Maximizing stock value

D

A trademark is an example of

A a productive asset.

B. an intangible asset.

C. a nebulous asset.

D. none of these.

B

Which of the following is an example of a fixed cost?

A. Cost of equipment purchased for an assembly line to be used in the production of a new product.

B. Assembly costs associated with the production of a new product.

C. Labor costs associated with the production of a new product.

D.Shipping costs associated with the sale of a new product.

A

Which of the following statements is true?

A. The largest investors in corporate bonds are small individual investors.

B. The market for corporate stocks is thin compared to the market for corporate bonds.

C. Institutional investors such as life insurance companies tend to not invest in corporate bonds.

D. Prices in the corporate bond market tend to be more volatiie than prices of securities sold in markets with greater trading volume.

D

Which of the following statements is not a limitation associated with market valuation of balance sheet accounts?

A. It can be difficult to identify the market value of an asset, particularly if there are few transactions involving comparable assets.

B. The estimates of market value can involve complex financial modeling, and the resulting numbers can be open to manipulation and abuse.

C. Marking to market provides decision makers with a better chance of making the correct economic decision, given the information available.

D. Mark-to-market accounting can become inaccurate if market prices deviate from the "fundamental" values of assets and liabilities.

C

Peer group analysis can be performed by

A) management choosing a set of firms that are similar in size or sales, or who compete in the same market.

B) using the average ratios of this peer group, which would then be used as the benchmark.

C) identifying firms in the same industry that are grouped by size, sales, and product lines in order to establish benchmark ratios.

D) Only a and b relate to peer group analysis.

D

The process of converting future cash flows into their present value is called:

A. time value of money.

B. discounting.

C. compounding.

D. none of the above.

B (Hoặc câu này có thể hỏi là: The process of converting future cash flows to what its present value is)

Which of the following is an income statement item?

A. Accumulated depreciation.

B. Accrued taxes.

C. Retained earnings.

D. Selling and administrative expenses.

D

Which of the following would generally NOT increase shareholders' wealth?

A. Receiving cash flows sooner rather than later

B. Increased government regulation

C. Receiving larger cash flows

D. Rapid growth in the overall economy

B

Who among the following is responsible for setting an agenda at meetings of the board of directors?

A. Chairperson of the board of directors

B. President

C. Nominating committee

D. Manager

A

Among the following, who is typically responsible for managing a large corporation's financial function?

A. The CEO

B. The Chairman of the board

C. The Vice-President

D. The CFO

D (Câu này có thể hỏi là Which of the following individuals is typically most responsible for managing a large corporation's financial function?=>> vẫn chọn D)

Which of the following investments will have the highest future value?

A. $1,300 invested at an annual interest rate of 10 percent for 5 years

B. $1,000 invested at a quarterly interest rate of 2.25 percent for 10 years

C. $1,300 invested at a quarterly interest rate of 2.25 percent for 5 years

D. $1,000 invested at an annual interest rate of 10 percent for 10 years

D

Which of the following presents a summary of the changes in a firm's balance sheet from the beginning of an accounting period to the end of that accounting period?

A.The statement of retained earnings.

B. The statement of working capital.

C. The statement of cash flows.

D. The statement of net worth.

C

Which of the following is a cash flow from investing activities?

A.Cash payment of dividends to shareholders.

B. Cash from sale of products.

C. Purchase of plant, and equipment.

D. Rent received from industrial property owned.

C

Contingent projects would imply that

A. the acceptance of one project is dependent on the acceptance of the other.

B. the projects can be either mandatory or optional.

C. Both a and b.

D. None of the above.

C

Which of the following best represents cash flows to investors?

A. Cash flow from operating activity, plus cash flow generated from net working capital.

B. Earnings before interest and taxes times 1 minus the firm's tax rate.

C. Net income, minus dividends paid to preferred stockholders.

D. Cash flow from operating activity, minus cash flow invested in net working capital, minus cash flow invested in long-term assets.

D

Which of the following organizational forms is subject to the Securities and Exchange Commission (SEC) regulations?

A. Sole proprietorship

B. Partnership

C. Private corporation

D. Public corporation

D

If Company X has the option of leasing some factory space to Company Y or utilizing it for another product Egg-mow should Company X handle the lost lease payments on the factory space if it chooses the product

A. Ignore it.

B. include it as an opportunity cost.

C. Include half of it as additional revenue for the project.

D. Include all of it as additional revenue for the project

B

If your investment pays the same amount at the end of each year for a period of six years, the cash flow stream is called

A. a perpetuity.

B. an ordinary annuity.

C. an annuity due.

D. a growing perpetuity.

B

William deposited $25,000 today that would earn an annual interest of 3 percent each year for a period of 2 years. The amount of $25,000 represents the:

A. present value of an annuity.

B. future value of an annuity.

C. present value.

D. future value.

C

The idea that we can evaluate the cash flows from a project independently of the cash flows for the firm is known as

A. the stand-alone principle.

B. the dependent principle.

C .the independent principle.

D. none of the above.

A

Which of the following statements is correct?

A. A time line is not meaningful unless all cash flows occur annually.

B. Time lines are useful for visualizing complex problems prior to doing actual calculations.

C. Time lines cannot be constructed in situations when the cash flows occur at yearly and quarterly frequencies.

D. Time lines cannot be constructed for annuities where the payments occur at the beginning of the periods.

B

Which of the following equations is used to compute the future value using continuous compounding?

(i) FV∞ = PV x e ^(i x n)

(ii) FV∞ = PV / e ^(i x n)

(iii) FV∞ = e^i + PV

(iv) FV∞ = e^i x PV

A. (i)

B. (ii)

C. (iii)

D. (iv)

A

Which one of the following statements is NOT correct?

A. The DuPont system is based on two equations that relate a firm's return on asset (ROA) and retum on equity (ROE).

B. The DuPont system is a set of related ratios that links the items of balance sheet and the income statement.

C. Both management and shareholders can use this tool to understand the factors that drive a firm's return on equity (ROE).

D. The DuPont system includes the current ratio.

D

Which of the following statements is NOT true about broker markets?

A. Brokers charge commission fees for their services of bringing together buyers and sellers.

B. Brokers' extensive contacts provide them with a pool of price information that individual investors could not economically duplicate themselves.

C. Investors have an incentive to hire a broker because what they charge as a commission is less than the cost of direct search.

D. Brokers can guarantee an order because they have an inventory of securities.

D

Which of the following statements is true?

A. Only 20 percent of interest income is taxable income for a corporation.

B. Dividend income is fully taxable income.

C. Interest paid on debt obligations is a tax-deductible business expense.

D. Dividends paid to stockholders are a tax-deductible business expense.

C

Which of the following business organizational forms subject(s) the owner(s) to unlimited liability?

A. Sole proprietorship

B. General partnership

C. Corporation

D. Both A and B

D

When the discount rate:

A decreases, the present value of the future cash flow does not change

B. decreases, the present value of any future cash flow increases.

C. increases, the present value of any future cash flow increases

D. increases, the present value of any future cash flow does not change.

B

Cash flows associated with annuities are considered to be

A. an uneven cash flow stream.

B. a cash flow stream of the same amount (a constant cash flow stream).

C. a mix of constant and uneven cash flow streams.

D. none of the above.

B

Which of the following does maximizing shareholder wealth not usually account for?

a. Risk.

b. Government regulation.

c. The timing of cash flows.

d. Amount of cash flows.

B

Which one of the following statements is NOT true of realized yield?

A. The realized yield is the return earned on a bond given the cash flows actually received by the investor.

B. The realized yield is equal to the yield to maturity even if the bond is sold prior to maturity.

C. It is the interest rate at which the present value of the actual cash flows generated by the investment equals the bonds price at the time of sale of the bond.

D. The realized yield allows investors to see the return they actually earned on their investment.

B

Your uncle is planning to sell his second home in Bethany Beach, Delaware in the next few weeks. You are interested in buying this beachside property, so your agent negotiates a price for the house with your uncle's agent. This transaction is an example of the:

A. cost principle.

B. assumption of arm's-length transactions.

C. realization principle.

D. going concern assumption.

B

Which of the following is a limitation of ratio analysis?

A. Ratios depend on current market values data rather than historical costs.

B. Not being comparable between firms of different sizes.

C. Trend analysis being inaccurate because it is not influenced by inflation.

D. Differences in accounting practices like FIFO versus LIFO make comparison difficult.

D

The degree of pretax cash flow operating leverage provides us with a measure of how sensitive:

A. Pretax operating cash flows are to changes in revenue.

B. Accounting operating profits are to changes in revenue.

C. NOPAT is to changes in tax rates.

D. Accounting operating profits are to changes in tax rates.

A

A good capital budgeting decision is one in which the perceived benefits of the project are:

A. equal to the cost of the asset.

B. less than the cost of the asset.

C. more than the cost of the asset

D. not identifiable

C

Which of the following is NOT a widely-known stock market index?

A The Dow Jones Industrial Average

B. The OTQ Composite Index

C. The New York Stock Exchange index

D. The Standard and Poor's 500 Index

B

Which one of the following statements is NOT true about common stock?

A. Common-stock holders have the right to vote on the selection of the board of directors for the firm.

B. Common stock is considered to have no fixed maturity.

C. Owners of common stock are guaranteed dividend payments by the firm.

D. Common-stock holders have limited liability toward the obligations of the corporation.

C

It is easy for individuals to trade in the corporate bond market because

A. the corporate bond market is considered to be very transparent.

B. prices in the corporate bond market tend to be more stable.

C. centralized reporting of deals between buyers and sellers take place.

D. None of the above statements are true.

D

A stakeholder is:

A. someone geographically close to the firm's headquarters.

B. someone who has a claim on the cash flows of the firm.

C. a business organization.

D. someone working for the competitor of the firm.

B